Questor share tip: BG Group a buy despite challenges ahead

BG Group's new chief has a lot to do to reassure the market. Questor says buy.

It's a shame Sir Frank Chapman is leaving his role as chief executive of BG Group as it faces its most challenging time in years. However, his replacement looks like a good choice to take on the mantle.

There are some significant challenges facing the company at the moment – the most important of all being repairing investor confidence. At the start of November the group warned that production would be flat in 2013 – a much lower out-turn than expected.

Issues at numerous projects around the world mean production in 2013 will now be flat, compared with analysts’ expectations for a significant surge of between 10pc and 15pc.

Sir Frank will be succeeded by Chris Finlayson. He was recruited by BG two years ago after a long international career at Royal Dutch Shell, where he ended up as managing director of the group’s Nigerian operations.

Since then Mr Finlayson has been executive director and managing director of BG Advance, which includes the group’s exploration team, capital projects programme and procurement and technology operations.

Mr Finlayson, who was a surprise appointment to the market, will take up the role from January 1, but Sir Frank will be around in an advisory capacity to help him ease into the position until the middle of the year.

So, although Mr Finlayson was not the front-running candidate, it is interesting that he is an “outsider insider” and he has a great opportunity to help steer the group away from its current woes. The share price, after all, is now back down in the lows not seen since a few weeks after Lehman Brothers collapsed.

Following the recent warning about production, BG was keen to stress that most of the negative news related to deferral in production to future years. The exception to this is Alexandria in Egypt, where the company has not been able to stop a decline in gas output.

However, most of this capable of being sorted out and global markets are structurally short of energy. BG’s projects in Brazil and Australia remain very valuable.

Trading on a 2013 earnings multiple of 11.9 and yielding 1.6pc, the shares remain a buy for recovery.